CERC Orders SECI to Compensate Hero Energy for Extra Expenses in Bhadla Solar Project

The Central Electricity Regulatory Commission (CERC) has ordered Solar Energy Corporation of India Limited (SECI) to pay the requisite compensation to Clean Solar Power (Bhadla) Pvt. Ltd., a wholly owned subsidiary of Hero Solar Energy Private Limited (HSEPL) that developed solar projects with 300 MW capacity in Rajasthan, on account of additional costs incurred by the solar developer following the imposition of safeguard duty (SGD) on the import of solar cells in a notification released by the Ministry of Finance.

In 2017, SECI issued an RfS inviting bids for the selection of solar power developers for the development solar projects worth 500 MW in Bhadla, Rajasthan. HSEPL won the bid, set up Clean Solar Power Ltd., and entered three Power Purchase Agreements (PPA) in April 2018 to own and operate three solar projects of 100 MW each based on Photo Voltaic technology in the area. SECI, the intermediary procurer, had also executed a Power Sales Agreement (PSA) with Uttar Pradesh Power Corporation Limited (UPPCL), the buying utility in the Uttar Pradesh, a month prior. In July 2018, the Ministry of Finance issued a notification, imposing SGD on the import of solar cells (whether or not assembled in modules or panels).

As a result, Clean Power provided SECI and UPPCL with all the relevant documents for the reconciliation of its claim for compensation of Rs. 139,05,19,902/- payable by SECI towards expenditure incurred by the developer due to imposition of SGD. In December 2020, SECI confirmed the amounts claimed by Clean Power (i.e., Rs. 50,45,20,321/- for Bhadla-I, Rs. 49,27,06,488/- for Bhadla-II, and Rs. 39,32,93,093/- for Bhadla-III) towards compensation for Change in Law event post reconciliation and offered to make payment of the said amounts on annuity basis spread over a period of 13 years at the annuity rate of 10.41% per annum, subject to the final outcome of a petition. In January this year, Clean Power submitted the requisite undertakings to SECI for the release of the reconciled amount of compensation. However, SECI has not released the payment till date.

Clean Power then petitioned CERC, requesting the commission to declare SGD an event of ‘Change in Law’ and to direct SECI to pay lump sum compensation for additional expenditure along with 5% IGST on such amount plus the interest/carrying cost from the date of impact till the date of reimbursement.

The commission notes that SECI has admitted that “there is no dispute over the claimed amount. However, UPPCL has not yet confirmed the reconciliation of the Petitioner’s [Clean Power’s] claims” and the rate of annuity payment, the latter being subject to another petition. The commission has directed SECI to pay to Clean Power the reconciled amount of compensation on account of CIL on annuity basis, subject to the outcome of the other petition. While the compensation to be paid is not conditional upon the payment to be made by UPPCL to SECI, the latter is eligible to claim the same from UPPCL on ‘back to back’ basis. The commission has directed UPPCL to expeditiously settle the claims in term of the PSA. The first instalment of the claim shall be paid within sixty days of the date of this order failing which it will attract late payment surcharge as provided under PPAs/ PSA, declares CERC.

The commission also notes that since the PPAs in the instant matter do not have restitution provisions, Clean Power’s claim regarding carrying cost is not admissible. Also, since the PPAs do not have a provision for separate ‘interest on working capital/ return of equity’ as the PPAs have been signed post a competitively bid process, these claims are also not admissible.

The entire order can be read here.